Daily analysis 11.10.2012

, author:

Marcin Lipka

S&P downgraded Spain from BBB+ to BBB-. Madrid's credit worthiness is only one notch above the junk rating. Will Moody's cut the rating to speculative?

Wednesday was another bearish day both on US equities and on EUR/USD. It is clearly seen that markets are under pressure caused by few major issues. First of all the slowdown of the global economy then the worries about US earnings season and last but not least Spanish problems. Spain was the main character of yesterday’s session. Just about at the end of the trading day S&P downgraded Madrid from BBB+ to BBB- what is only one notch above the junk level. The similar move is expected from Moody's. Although any downgrade by Moody's will result in rating at a speculative level.

On the other side of Atlantic the Federal Reserve published the Beige Book. FED claims that the growth is modest but the economic situation is slightly better than the August report showed. Overall investors didn't get any new major data form the report and in consequence we didn't also observe any reaction on the markets. Today investors should pay attention to the Italian debt auction where Rome will offer bonds with few different maturities (up to 2025). It will be interesting to see results concerning the Spanish downgrade. From the macro calendar we have also weekly jobless claims from the US. Fewer claims should help markets and Polish zloty, but I am not expecting a large deviation from the consensus. Only difference +/-30 K will spur rapid reaction.

Interestingly behaved Polish zloty yesterday. In recent days it was resilient to the worsening sentiment. Few analysts expected that a regular Tusk's visit in Finland can weaken the PLN. The Prime Minister boasting Polish economy said that even if PLN gets to 4.5000 level it will not harm the economy. After this statement PLN depreciated 0.015 PLN to EUR. It was not huge move, but concerning recent low volatility it caused it to around 4.1000 level (1-week high). PLN cannot be also supported by RPP (Members of the Monetary Committee) who claim lowering rates fast and risk off sentiment. The pressure on PLN is pretty strong and if we breach resistant levels (4.10- 4.12), the move to around 4.2000 on EUR/PLN is possible .

Expected PLN levels depending on EUR/USD value:

EUR/USD 1.2850-1.2950 1.2750-1.2850 1.2950-1.3050
EUR/PLN 4.0900-4.0700 4.1100-4.0900 4.0700-4.0500
USD/PLN 3.1800-3.1400 3.2200-3.1800 3.1400-3.1000
CHF/PLN 3,3800-3.3600 3,4000-3.3800 3.3600-3.3400

Technical analysis EUR/USD; the pair unsuccessfully tried to come back above 1.2900 level (bearish signal). Still the strong support is around 1.2730-12700 where there are 50-day MA, 200- day MA and 38.2% Fibonacci retracement level. If that support fails we can expect the slide to around 1.2600 and initiation of the downtrend. To reverse the recent move the EUR/USD should close above 1.2920 (above the uptrend line).

Technical analysis EUR/PLN: the move on PLN in last 24 hours can be quite significant. If we breach 4.1050-4.1200 levels (50-day MA, 23.6% Fibonacci level and downtrend line) PLN is expected to weaken another 0.08 PLN to around 4.2000.

Technical analysis USD/PLN: the pair is close to crucial resistance levels around 3.1800-3.2000 (23.6 Fibonacci retracement level, 50-day MA and the downtrend line). If we close above this levels USD/PLN can climb quickly to 3.3000.

Technical analysis CHF/PLN: similarly to other PLN pairs CHF/PLN is close to the crucial levels. The move above 3.4000 (50-day MA, the downtrend line, and 23.6% Fibonacci retracemtn level) can result in reaching by CHF/PLN levels around 3.47000.

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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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